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blog / 02.07.19

Power of the Purse: what is the Estimates process and how does it work?

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Some backbench MPs are seeking to use House of Commons approval of the government’s Main Estimates for 2019-20 as a vehicle against a ‘no-deal’ Brexit, meaning the process is attracting greater interest than usual. We set out how the Estimates process works, how it has changed over the years, and how it could be improved in the future.

Dr Ruth Fox

Director and Head of Research, Hansard Society

Dr Ruth Fox

Ruth is responsible for the strategic direction and performance of the Society and leads its research programme. She has appeared before more than a dozen parliamentary select committees and inquiries, and regularly contributes to a wide range of current affairs programmes on radio and television, commentating on parliamentary process and political reform.

In 2012 she served as adviser to the independent Commission on Political and Democratic Reform in Gibraltar, and in 2013 as an independent member of the Northern Ireland Assembly’s Committee Review Group. Prior to joining the Society in 2008, she was head of research and communications for a Labour MP and Minister and ran his general election campaigns in 2001 and 2005 in a key marginal constituency.

In 2004 she worked for Senator John Kerry’s presidential campaign in the battleground state of Florida. In 1999-2001 she worked as a Client Manager and historical adviser at the Public Record Office (now the National Archives), after being awarded a PhD in political history (on the electoral strategy and philosophy of the Liberal Party 1970-1983) from the University of Leeds, where she also taught Modern European History and Contemporary International Politics.

In order to incur expenditure, the government needs to obtain approval from Parliament for its departmental spending plans. Each year MPs are thus routinely asked to authorise the government’s plans for the spending of money raised through taxation. In the Main Estimate for the financial year 2019-20 (due to be approved on 2 July), £840.7 billion of government expenditure will be approved by MPs in a series of votes on Supply motions, at the conclusion of two days of debate on just four departmental spending plans.

This annual Estimates process is the means by which the House of Commons controls the government’s spending proposals. Given the dependence of all forms of government activity on public finances, the Estimates process underpins all other forms of accountability and goes to the heart of the relationship between Parliament and government.

How do MPs approve government spending?

Since 1997, multi-year Spending Reviews have set out headline spending plans for each government department. The last Spending Review, in 2015, set out expenditure proposals for the period 2016-17 to 2019-20.

Each year, the government makes formal requests to Parliament for funds for departments for the financial year ahead, drawing on the plans initially outlined in the Spending Review. These requests are made in at least two and sometimes as many as four stages throughout the year:

(i) Vote on Account: this is normally published each February, and approved by Parliament in March (alongside the Supplementary Estimates – see below), in time for the start of the next financial year in April. It is a request from the government for advance funding to cover departmental spending plans for the first four months of the next financial year. The calculation of this sum is usually based on 45% of spending in the current financial year (during which the vote takes place). This sum is intended to be sufficient to tide the government over until the Main Estimate is approved in the summer (see below), but not to be so high as to reduce entirely the importance of Parliament’s consideration of the Main Estimate.

(ii) Main Estimates: these set out the government’s formal annual spending plans for each department, and their agencies and arms-length bodies. They are normally published in April and approved in early July. The advance funding approved through the earlier Vote on Account is deducted from each departmental estimate and the remainder (known as the ‘balances to complete’) is voted on and then made available to the government to cover the rest of the financial year, once legally authorised by Parliament in the Supply and Appropriations Act (see below).

(iii) Supplementary Estimates (only if required): these are the government’s additional requests to Parliament to authorise new funding levels (or amend existing ones) and/or authorise changes in the purpose for which money is sought by departments. Supplementary Estimates are used, for example, to address costs arising from transfers of functions in machinery-of-government changes. The Supplementary Estimates are usually published in February for approval by the House of Commons in Supply Resolutions by 18 March, to enable the funds to be spent before the end of the financial year. (The 18 March date was laid down in 1973, moving earlier from the previous date of 25 March and before that 31 March.) The Supply Resolutions are then given legal effect in a Supply and Appropriation (Anticipation and Adjustments) Act.

(iv) Statement of Excesses (only if required): these are exceptional requests made by the government if a department spends money beyond the level or purpose approved by Parliament. In effect, MPs are asked to grant retrospective approval for the spending. They are exceptional spending requests, not the norm, and usually arise as a result of an error, or where unavoidable spending has been incurred. Any such Statement automatically triggers a qualified audit opinion by the National Audit Office (NAO) and a Public Accounts Committee report.

What do Estimates comprise?

Each government department produces its own annual Estimate, and HM Treasury compiles and publishes them together in a single Estimates report for presentation to Parliament. Treasury rules define the spending categories contained in the Estimates. Each departmental Estimate is made up of three key parts:

(i) The ‘ambit’: this is the high-level description of what the money will be spent on in each department. If a department spends money outside the scope of the ‘ambit’ approved by Parliament, then that spending is unauthorised and therefore illegal. In such circumstances a department will require a Statement of Excess to provide retrospective approval for the spending.

(ii) Departmental expenditure limits (DELs): these cover net spending, subject to the limits set out in the Spending Review process, in areas of activity that departments can generally forecast and over which they are therefore expected to exercise control. In each annual Estimate, the DELs are divided into two sub-categories:

Resource DEL or current ‘day-to-day spending’: this includes, for example, costs for staff, for purchasing goods and services, for rents, maintenance and other administrative costs, depreciation and the sale of assets.

Capital DEL or ‘investment spending’: this includes capital grants, loans, and the purchase, disposal or improvement of major assets.

(iii) Annually managed expenditure (AME): this covers net spending in areas that are less predictable and therefore more difficult for departments to forecast and control:

Resource AME: this includes benefits, state pensions and other welfare costs, as well as provision for liabilities.

Capital AME: this includes areas such as student loans.

Generally, departments cannot switch funds from DEL to AME, or from resource to capital spending categories once the Estimate has been approved. However, within each category, a breakdown of proposed spending is provided, and this does not bind the government. Here, the government can ‘vire’ money from one heading area to another, provided that neither the ambit nor the overall spending limit is breached.

Six principles governing the Estimates process in Parliament

The legal basis for parliamentary control of Crown (i.e. government) expenditure dates back to the Glorious Revolution of 1689 and Parliament’s decision to legalise the standing army but provide its expenses only for 12 months in advance. Over time, this principle - that expenses be granted for the year ahead - was extended to other areas of government expenditure until, by 1830, all civil government expenditure was provided on this basis.

Six key principles or rules now govern what has become known as the Estimates process. They are derived variously from practices of the House of Commons stretching back to the early eighteenth century, from Standing Orders, and in some instances from statute:

1. The financial initiative of the Crown: Standing Order No. 48 states that the House will ‘receive no petition for any sum relating to public service or proceed upon any motion for a grant or charge upon the public revenue, whether payable out of the Consolidated Fund or the National Loans Fund or out of money to be provided by Parliament, or for releasing or compounding any sum of money owing to the Crown, unless recommended from the Crown.’ The provision that the House will only consider expenditure proposals made by the Crown dates back to an Order of the House of Commons on 11 June 1713 which stated ‘That this House will receive no Petition for any sum of money relating to public services but what is recommended from the Crown.’ This Order gave the government the sole power of financial initiative in Parliament but was, in part, designed to limit ‘pork barrel’ politics by MPs seeking funds for local constituency expenditure with little or no regard for the nation’s finances.

2. Financial privilege: control can only be exercised by the House of Commons, not by the House of Lords. The Parliament Act 1911 provides that all Supply and Appropriation Bills must be certified as Money Bills and can receive Royal Assent without the consent of the Upper House. In practice, Supply and Appropriation Bills are passed to the House of Lords but passage there is a formality: the Bill is not printed and it is not debated or amended.

3. The requirement for preliminary approval of expenditure by resolution prior to legislative proceedings.Standing Order No. 49 sets out that ‘Any charge upon the public revenue whether payable out of the Consolidated Fund or the National Loans Fund or out of money to be provided by Parliament including any provision for releasing or compounding any sum of money owing to the Crown shall be authorised by resolution of the House.’ The Supply and Appropriations Bill for final authorisation of the release of monies from the Consolidated Fund to departments can thus only be brought forward once the House has considered the Supply motions. In the same way, the Finance Bill follows consideration of the Budget.

4. Control on the purposes of expenditure: spending can only be for the purposes approved by Parliament, as set out in the ‘ambit’ of each departmental Estimate. The NAO audit function provides a check at the end of the year on whether or not departments have spent money only for the purposes approved by Parliament.

5. The annuality rule: resources are authorised for a specific financial year and must be applied only for use in that financial year. The original purpose behind this rule was to prevent government hoarding surplus money from one year to the next and then spending it in ways not authorised by Parliament. This rule was first applied in the 1862-63 session, following a recommendation from the then newly-established Committee of Public Accounts in 1861. The rule is now formally set out in the Government Resources and Accounts Act 2000 and is important in the context of NAO auditing of government accounts at the end of the financial year.

6. The sessionality rule: resolutions must, subject to certain exceptions, be given statutory effect in the session in which they are passed (although this has been disapplied from time to time, including in relation to the shift in the start and end of parliamentary sessions from autumn to spring. It is now regarded as a far less important rule than it used to be).

Departmental select committee scrutiny of the Main Estimate and accompanying memoranda

The Main Estimate is laid before the House of Commons about five weeks after the Chancellor’s Spring Statement (the timing previously revolved around the Budget, when this was a spring event). The Main Estimate for 2019-20 was published on 9 May 2019, following the Chancellor’s Spring Statement on 13 March.

Explanatory memoranda on the Estimates for each department are also laid before Parliament. These explain the expenditure headings in the estimates, any changes from previous years, and new areas of spending. They also explain the Barnett formula calculation of the block grant for the devolved governments.

It largely falls to departmental select committees to scrutinise the relevant departmental Estimates and accompanying Estimates memoranda. One of the committees’ core tasks is ‘to examine the expenditure plans, outturn and performance of the department and its arms-length bodies and the relationship between spending and the delivery of outcomes.’

Within the House of Commons, the Scrutiny Unit was formed in 2002 to support select committees, particularly in the area of financial scrutiny. The Scrutiny Unit provides select committees with briefing material on each departmental Estimate, as well as support with any follow-up scrutiny, including questioning of ministers or senior departmental officials.

One of the problems facing MPs in scrutinising the Estimates is that they are dense, complex and difficult to understand. Expenditure is set out under very broad headings and is rarely linked directly to identifiable projects, programmes or familiar outputs. The Estimates for 2019-20, for example, do not clearly identify departmental spending to prepare for a ‘no-deal’ Brexit.

It is therefore difficult for MPs to focus on particular areas of spending other than in very broad terms, and even more difficult to target particular projects or programmes, should they wish to reduce spending via an amendment to the Estimate. The presentation of Estimates information in the UK has been criticised by the Organisation for Economic Co-operation and Development (OECD), and some academic observers contend that the high-level aggregation of financial information means that UK government ministers have far more discretion in implementing public spending than ministers in other OECD countries.

The Estimates Debates

Before the Main Estimates can be approved, two days of debates take place in the House of Commons chamber. Previously, the Liaison Committee (comprising the Chairs of all select committees) selected topics for Estimates Day debates, based on applications from select committees. However, under a plan recommended by the Procedure Committee and introduced on a pilot basis until the end of the 2017-19 session, any backbench MP can now bid, via the Backbench Business Committee, for an Estimates Day debate on one of the departmental Estimates. Such a debate may be linked to the full spending programme or a particular aspect of it.

For consideration as one of the debates on the 2019-20 Main Estimates, MPs had to submit their proposals to the Backbench Business Committee by 14 June 2019. The Backbench Business Committee met on 18 June to consider the representations. Eleven applications were received by the Committee for four debate slots (two each on the two Estimates Days). In deciding on the bids, members of the Committee take into account factors such as demonstrable levels of cross-party support, gender balance, and evidence of speaker demand.

At the 18 June meeting, three applications were considered for a debate on the Estimate submitted by the Ministry of Housing, Communities and Local Government, including a joint application from the Public Accounts Committee and the Housing, Communities and Local Government Committee. Two requests were submitted for a debate on the Education departmental Estimate, including one from Robert Halfon MP on behalf of the Education Select Committee which he chairs. Similarly, two bids were made to debate the Department of Work and Pensions Estimate, including one from Frank Field MP, Chair of the Work and Pensions Select Committee. These, plus a single bid to debate the Department for International Development Estimate, were all successful. In contrast, bids for debates on the Estimates laid by the Ministry of Justice, Ministry of Defence, Department of Health and Social Care and Foreign Office were all unsuccessful, although several MPs were offered the option of an alternative Backbench Business debate. Given that most of the MPs bidding for an Estimates Day debate wanted to focus on policy matters, this was a satisfactory alternative in a majority of cases.

Having considered all the bids, the Backbench Business Committee submits formal proposals for the four Main Estimates debates to the Liaison Committee. Under the power set out in Standing Order No. 145, the Liaison Committee recommends these proposals to the whole House which must agree them (as it did, this year, on 24 June).

Supply Motions and their amendability

Supply motions take two forms:

Amendable motions on the individual departmental Estimates that are debated on Estimates Days on the recommendation of the Backbench Business Committee and Liaison Committee. These are usually tabled between one and four days after the proposals for Estimates Day debates have been approved by the House.

Non-amendable ‘roll-up’ motions which provide for parliamentary approval of the other departmental Estimates which are not chosen for debate on Estimates Days.

Members may propose a reduction in an Estimate selected for debate (via an amendment to a Supply motion of type i) above). However, they cannot propose an increase in the Estimate. As only a government minister may move a Supply motion, and the government establishes the upper limit on spending, any amendment to increase that limit is prohibited. This reflects the constitutional principle that only the Crown may initiate expenditure.

Once approved by the House, the Supply motions provide the parliamentary authority for the Supply and Appropriation Bill which must follow, and which is not subject to debate or amendment (see below).

Because the Supply motions provide the foundation for this legislation, the form and content of the motions (and of any proposed amendments to them) is strictly policed. Once passed as resolutions, they must provide a clear legal basis for action; they cannot cover matters unrelated to the Estimates; they cannot include statements of opinion; and they should not impose conditions on the authorisation of expenditure. The approval of the Estimates must be clear and unambiguous, in relation to both the amounts involved and the purposes for which the spending is designated. Any amendment to the Estimates motions which does not meet these requirements will be deemed disorderly and is therefore unlikely to be selected.

The Speaker of the House of Commons does not have to set out reasons for his decisions on the selection of amendments. It is likely, however, that John Bercow’s decision not to select the anti-‘no-deal’ Brexit amendments tabled by Dominic Grieve MP and Margaret Beckett MP in relation to the 2019-20 Main Estimate on 1 July was rooted in concern that the strict requirements outlined above would not be met. The amendments would not have provided clear and unambiguous approval of the Estimates, and would have imposed open-ended conditions on the authorisation of expenditure - it was clear why and when the spending spigot might be turned off in the event of a ‘no-deal’ Brexit, but not clear when and how it might be turned back on.

If a government were to lose a vote on the Estimates, this would have political, but not necessarily constitutional, implications and consequences.

Approval of the Main Estimates: why is there a deadline of 5 August?

The motions to approve the Main Estimates have to be debated no later than 5 August, as set out in Standing Order No. 55.

The 5 August deadline for approval of the Main Estimates dates back to a Sessional Order of 1896, proposed by the-then Leader of the House of Commons, Arthur Balfour MP. Before that, the House of Commons had often sat through August and early September to debate the Estimates and grant approval to the related Appropriation Act. The Speaker had few formal means to bring the debates to a close on what, in the late nineteenth century, were often up to 200 individual Estimates motions. The 1896 Sessional Order provided that all outstanding questions relating to the Main Estimates must be put to and resolved by the House by 5 August, with proceedings on the Appropriation Bill then to be taken the following week. (It was alleged during the debate on the Order that this timetable was established with the demands of grouse shooting on the Glorious Twelfth in mind.)

However, the 5 August deadline is not set in stone. It could be altered if MPs wished. A motion could be moved, for example, to amend the Standing Order and substitute a date other than 5 August for consideration of the Estimates in any given year. A motion could also amend the Standing Order provisions requiring the Speaker to put the questions forthwith.

Such an approach has never been tested. MPs would have to weigh the political advantages of doing so against the risks involved in potentially withholding funding for critical economic and social programmes of benefit to their constituents.

If MPs declined to approve the Main Estimates in August, then by early autumn the government would likely run out of money, having used up the 45% advance funding secured through the earlier Vote on Account, and having exhausted all options to redeploy funds from other sources such as the Contingencies Fund or the National Insurance Fund.

We know of no case in the modern era where either the Main Estimates in the summer or the Supplementary Estimates in the spring were not approved by Parliament by the necessary deadlines in August and March, respectively.

The Supply and Appropriation Bill

The Supply motions, if approved, become resolutions of the House. These resolutions are the parliamentary foundation for the Supply and Appropriation Bill which provides formal statutory authority for the Estimates. Only once the Bill receives Royal Assent does the spending set out in the Estimates, and approved by Parliament, have legal effect.

The Supply and Appropriation Bill is introduced by the Chief Secretary to the Treasury once the House has agreed the Supply resolutions. The Bill is usually introduced immediately after the votes on the Supply motions, with Second Reading set for the following day.

Given that the House has already approved the Supply resolutions, the Bill is not subject to debate or amendment at any stage. There is no Committee stage, and thus no Report stage, and under Standing Order No. 56 the questions on Second and Third Reading are put forthwith.

The Bill is certified as a Money Bill by the Speaker, and passes to the House of Lords, where it is passed unamended (in accordance with the Parliament Act 1911).

Once enacted, the Supply and Appropriation Act provides the basis on which the NAO will audit the government’s accounts.

Opportunities for reform?

Despite the importance of the Estimates, their treatment by MPs has long been akin to a ‘rubber stamp’. The UK is considered to have among the weakest systems for parliamentary control and influence over government expenditure in the developed world.

Members tend to be far more active in debating and scrutinising how money is raised – predominantly through taxation – than these detailed annual plans for government expenditure. And, in the last two decades, the multi-annual Spending Review has arguably reduced the importance of Estimates still further, for it is in the Spending Review process, not the setting of annual departmental expenditure plans, that the key choices about public spending and policy priorities are made. When annual spending plans have already been drawn up, MPs understandably have little appetite for detailed debate and involvement in an Estimates process when it is largely too late for them to have much, if any, genuine impact.

There are thus strong arguments for improvements in financial scrutiny. These should provide for a greater focus upstream, at an earlier stage in the process, via changes in the way that the Spending Review is scrutinised, as well as strengthen scrutiny downstream, through more detailed analysis by select committees of Departmental Annual Reports (DARs) (although select committees’ DAR scrutiny has improved in recent years).

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